Institutional Quality and Economic Growth in Sub Saharan Africa: A Panel Data Approach
This paper examines the impact of different dimensions of institutional quality indices on economic growth of Sub-Saharan Africa (SSA) countries for the period 1991-2015. Unlike previous studies that either use composite measure of institutions or a single intuitional indicator in isolation, the present study has employed Principal Component Analysis (PCA) to extract fewer institutional indicators from multivariate institutional indices. Accordingly, three institutional indicators, namely, investment-promoting, democratic & regulatory, and conflict-preventing institutions have been identified and their impact on economic growth is analyzed using two-step system-GMM estimation method. The empirical results indicate that investment-promoting and democratic & regulatory institutions have a significant positive effect on economic growth; however, once these institutions accounted for, conflict-preventing institutions do not have a significant impact on growth. Thus, our findings suggest that countries in the region should continue the institutional reform in order to enhance the economic growth of the region. Specifically, institutions promoting investment and democracy & regulatory quality are crucial.